Layoffs Hit Wall Street As Financial Needs Change

Traders work on the floor of the New York Stock Exchange in December. In the past year, banks in New York and around the country have announced tens of thousands of job cuts, as there isn't the same need for some financial services as before.

Spencer Platt
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Originally published on January 13, 2012 11:50 am

It's hard to tell if the Occupy Wall Street protests had much impact on banks, but banks are doing some de-Occupying within their own ranks. It wasn't as bad as the massive layoffs following the 2008 meltdown, but last year was painful for Wall Street. Bank of America, Citigroup, Goldman, Morgan Stanley — almost all the big banks — announced big layoffs, totaling more than 60,000 employees.

That's not surprising, given last year's losses. In one quarter, the securities industry lost $3 billion. For the full year, the industry is expected to have made money, but just half of what it did compared to the previous year.

Bank analyst Nancy Bush says with businesses and consumers still focused on reducing debt, there just is not the same need for financial services as a whole as there was before.

There have been fewer big corporate deals, and doing those deals brings in a lot of money for banks. There's also been a drop in company stock and bond offerings that generate big fees.

"If you've got a business which is built around trading and investing banking, you've got a problem, because you are not generating the types of earnings that you would like," says bank analyst Dick Bove with Rochdale Securities.

There are also new rules limiting, for example, the fees banks can charge retailers for debit card transactions. Those have been cut in half.

Banks used to make big profits trading with their own money, and that's now being curtailed by regulators who say it's too risky. Regulators are also requiring banks to put more money aside in case of future financial downturns. That might make them safer, but it means Wall Street firms have less money to invest or lend.

Then there's the general climate of caution.

"People don't want to take risks because they are uncertain about the future," says Paul Miller, a bank analyst at FBR Capital Markets. He cites fears about Europe's debt crisis as a top reason for Wall Street's falling profits.

"Until people get more bullish on the future, it's going to be very difficult for Wall Street to make money and they will continue to shed employees. They will continue to cut people's pay," Miller says.

Smaller Bonuses, Relatively Speaking

For those still employed, year-end bonuses being handed out now are expected to be as much as 30 percent lower compared with a year ago.

"Last year there was this generalized groaning about payouts being down, about their bonuses being down," Bush says. "This year? Not a peep ... People left on Wall Street are very much thinking, 'You know what? It's good that I have a job.' "

Smaller bonuses may please critics of Wall Street, but to put things into perspective, average salaries for these workers last year (not including bonuses) was more than $360,000. And top executives and the biggest deal makers will continue to earn millions.

"Wall Street tends to go through these paroxysms of, you know, growth and contraction," she says. "This is different. This is the financial services industry looking at its prospects, I think, over a long period of years."

The outlook in the years ahead is for a smaller, more stable and less profitable industry.

Here in the U.S., stock prices are down. Investors are disappointed with news from one of the country's biggest banks. JP Morgan said earnings last quarter fell 23 percent, largely on lower investment banking and trading. Other big banks are also having a rough time. In recent weeks, almost all the country's major banks have announced tens of thousands of layoffs. From New York, Charlie Herman of member station WNYC has more.

(SOUNDBITE OF VARIOUS NEWSCASTS)

UNIDENTIFIED BROADCASTER #1: Wall Street is bracing for huge layoffs.

UNIDENTIFIED BROADCASTER #2: ...effects of the uneasy economy, there's word today that some of the biggest firms may be handing out the proverbial pink slips...

CHARLIE HERMAN, BYLINE: It's not like the massive layoffs following the 2008 meltdown, but last year was painful for Wall Street. Bank of America, Citigroup, Goldman, Morgan Stanley - almost all the big banks announced layoffs, totaling more than 60,000 jobs. It's not surprising, considering that in one quarter last year, the securities industry lost $3 billion. For the full year, the industry is expected to have made money, but only half what it did compared to the previous year.

Nancy Bush, with NAB Research, says with businesses and consumers still focused on reducing debt...

NANCY BUSH: There just is not the same need for financial services, as a whole, as there was before. And that's why you're seeing the banks respond to the present environment with layoffs, branch closures, etc., etc. We just don't need them anymore; it's that simple.

HERMAN: Also, there are fewer big corporate deals - doing those deals brings in a lot of money for banks. And there's been a drop in company stock and bond offerings that generate big fees. Bank analyst Dick Bove works for Rochdale Securities.

RICK BOVE: If you've got a business which is built around trading and investment banking, you've got a problem - because you're not generating the type of earnings that you would like.

HERMAN: Then there are all the new rules limiting, for example, the fees banks can charge retailers for debit card transactions. They've been cut in half. Banks used to make profits trading with their own money. Now, that's being curtailed by regulators who say it's too risky. Regulators are also requiring banks to put more money aside in case of future financial downturns. That might make them safer, but it means Wall Street has less money to invest or lend. And then, there's the general climate of caution.

PAUL MILER: People don't want to take risks because they are uncertain about the future.

HERMAN: Paul Miller is a bank analyst at FBR Capital Markets. He cites the fears about Europe's debt crisis as a top reason for Wall Street's falling profits.

MILER: Until people get more bullish on the future, it's going to be very difficult for Wall Street to make money. And they will continue to shed employees, and they will continue to cut people's pay.

HERMAN: Bonuses for 2011, which are being handed out now, are expected to be as much as 30 percent lower compared to a year ago. Bank analyst Nancy Bush says people are happy to have a job.

BUSH: Last year, there was this generalized groaning about, you know, payouts being down, about their bonuses being down. This year, not a peep. You know, they're down again, but it's - I think people left on Wall Street are very much thinking, you know what? It's good that I have a job.

HERMAN: Smaller bonuses may please critics of Wall Street, but to put things into perspective, average salaries for these workers last year - that doesn't include bonuses - was over $360,000. And top executives, and the biggest deal makers, will continue to earn millions.

BUSH: Wall Street tends to go through these paroxysms of, you know, growth and contraction. This is different. This is the financial services industry looking at its prospects, I think, over a long period of years.

HERMAN: And the outlook in the years ahead is for a smaller, more stable and less profitable industry.